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Key Rate Duration _ Financial Exam Help 123.pdf - Financial...

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Financial Exam Help 123The place to get help for the CFA® examsWELCOME!BILL CAMPBELL III, CFASERVICESREGISTRATIONCFA LEVEL ICFA LEVEL IICFA LEVEL IIISAMPLE ARTICLESSAMPLE EXAMFAQSSUBMIT A TESTIMONIALCONTACT USSTOREDOWNLOADSERRATAKey Rate DurationPosted in: Free.In computing modified (or effective) duration for a portfolio of securities, we change theparinterestrate (the yield to maturity) ateverymaturity by some small amount up and down (±Δy), anddetermine the percentage price change in the portfolio for 1% change in yield.In essence, we add±Δyto the entire par curve.(Look herefor a refresher on the par curve, and for a refresher onbootstrapping the spot curve from the par curve, which we shall be doing a bit later.)Parallel shifts inthe par curve look like this:Modified (or effective) duration is useful for determining how the price of a security or a portfolio ofsecurities will change when the (par) yield curve undergoes a parallel shift, but is less useful (i.e.,notuseful at all) when the yield curve changes in a manner other than a parallel shift (e.g., flattening orsteepening).A more versatile measure of duration is needed in those cases;key rate durationisjust such a measure.The idea of a key rate duration (also known aspartial duration) is that we don’t add ±Δyto the entirepar curve; we add ±Δyonly to the YTM at a specific maturityon the par curve, leaving the YTM at allother maturities unchanged; that specific maturity is called thekey rate.Thus, we have the:½-year key rate duration: ±Δyadded to the½-year YTM, while the YTMs at all other maturitiesremain unchanged2-year key rate duration: ±Δyadded to the 2-year YTM5-year key rate duration: ±Δyadded to the 5-year YTM10-year key rate duration: ±Δyadded to the 10-year YTM20-year key rate duration: ±Δyadded to the 20-year YTM30-year key rate duration: ±Δyadded to the 30-year YTMPosted byBill Campbell III, CFAonJune 20, 2015Amazing ValueAmazing value for folks who want a deepunderstanding of the more difficult topics.Passed all three levels above 90%ile.During my CFA prep across the threelevels, I purchased the following itemsfrom FinancialExamHelp123, and I foundthem extremely helpful for understandingconcepts:Articles for CFA Level 1, 2, and 3Command Word Guide (L3)AM mock exams (L3)Grading session for an AM mock exam(L3)The articles helped with understandingnuanced content in a much more intuitivemanner than other providers (and CFAIcurriculum).The mock exams cover the most difficulttopics in L3, and help reinforce a deepunderstanding, much more so than anyCFAI questions on these topics. Themocks come with both "model" answerswhich are representative of what would beexpected as a response on the examalong wi...

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Term
Summer
Professor
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Tags
Yield Curve, YTM, Bond duration, Zero coupon bond, key rate duration

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